Summary

In recent years, pension systems have been subject to reforms
in practically all Council of Europe member States. Often, these
have been mainly aimed at enhancing the sustainability of systems
facing demographic changes (ageing population and higher life expectancy)
resulting in longer retirement periods overall, but, more recently,
also at reacting to the impact of the financial and economic crisis.

Whilst the viability of retirement systems is in the process
of being consolidated, all countries are not yet in a position to
guarantee adequate levels of retirement pensions to all pensioners
in the foreseeable future. The Parliamentary Assembly should invite
the member States of the Council of Europe to constitute retirement schemes
which are balanced between several pillars, by preserving the intergenerational
solidarity of pay-as-you-go systems whilst opening up to new modes
of financing by capitalisation.

Special support has to be given to social categories which
do not have the same possibilities for preparing their retirement,
in particular women who have to interrupt their professional activity
due to their responsibilities with regard to dependent persons (children
or parents), people with disabilities or migrants.

A. Draft resolution

(open)

1. European pension systems are faced with the challenges
of demographic developments which are threatening the stability
of the inter-generational contracts in place since the early 20th
century: the trend towards ageing of the population, life expectancy
well beyond retirement age and the imbalance between the number
of pensioners and the number of contributors of working age are
just some examples. In the current context of economic and financial
crisis, the national austerity programmes adopted by many member
States also have repercussions on pension systems and are leading
to new social inequalities between pensioners.

2. The Parliamentary Assembly, conscious of the efforts made
by the governments of numerous member States to enhance the viability
of their pension systems, is concerned about the safeguarding of
adequate pension levels offering pensioners a decent standard of
living.

3. It therefore considers that pensioners require special protection
in accordance with Article 23 of the revised European Social Charter
(ETS No. 163), which provides that Parties must, among other things, undertake
to make available to elderly persons “adequate resources enabling
them to lead a decent life and play an active part in public, social
and cultural life”.

4. To take up the dual challenge of current demographic trends
in Europe and the financial and economic crises, European pension
systems should not be geared exclusively to a funded approach. While
the use of such methods of financing pensions may represent a solution
to the problem of demographic trends, they prove less effective
in absorbing financial and economic shocks. The predominance of
funded components would heighten the vulnerability of pension systems,
which would become less resilient to the risks of the financial markets.
To ensure the viability and sustainability of pension systems, a
balance must therefore be struck between funded and pay-as-you-go
components.

5. Given the ongoing financial and economic crises, the complexity
of pension systems and the multitude of possible choices, it will,
moreover, be vital to resolve the problem of State budget deficits
in general, and in particular the deficits of public pension funds,
in order to be able to maintain the principle of inter-generational solidarity.
In this connection, a real revitalisation of the economy, which
should also benefit individual households, will be the decisive
factor in promoting a positive trend in pensions in Europe.

6. The Assembly calls on the member States of the Council of
Europe to apply the following principles in their national policies:

6.1. on a general level:

6.1.1. implement pension systems which
reflect the complexity of today’s work situations and lifestyles;

6.1.2. continue to combat the persistent inequalities in pension
systems, especially between women and men;

6.1.3. initiate or complete pension reforms that maintain both
the long-term viability of systems (including when facing future
financial and economic crises) and pension adequacy;

6.1.4. provide clear information which everyone can understand
on the implications of current pension schemes, particularly in
order to enlist sufficient support for future reforms;

6.2. with regard to the sustainability of systems:

6.2.1. adapt the retirement age and
the level and period of contributions to take account of increased
life expectancy;

6.2.2. design national pension systems based on several pillars
and a “mix” of sources of pension income (funded and pay-as-you-go
components), while preserving and consolidating inter- and intra-generational
solidarity, which confirms the State’s central role and State pensions as
the bedrock of pension systems;

6.2.3. promote international co-operation on pensions, given
that pensions are increasingly becoming a transnational matter extending
beyond the European Union (migrant professionals, international
pension funds, pensioners living out of the country, etc.);

6.2.4. where possible, restrict access to early retirement schemes
and other possibilities of early withdrawal from the labour market;

6.3. with regard to pension adequacy:

6.3.1. ensure an appropriate standard of living for pensioners
by providing them, via the pay-as-you-go public pension system,
with a minimum income at least equal to the national poverty threshold;

6.3.2. pursue policies promoting the creation of jobs with sufficient
pay to increase the capacity of individuals in work to provide for
their retirement and promote such supplementary provision;

6.3.3. take account of the new lifestyles of families and the
increase in average life expectancy in the resources allocated to
public pension funds;

6.3.4. find appropriate solutions for people with periods in
which they have made no pension contributions (such as people (mainly
women) with family responsibilities or people in low-paid or precarious
jobs, or the long-term unemployed who are unable to contribute or
save enough for a decent pension);

6.3.5. provide financial assistance for parents with dependent
children to enable them to bring up and support their children and,
at the same time, save enough for their own retirement;

6.3.6. provide specific solutions for categories of people who
require special protection and who are less able to prepare for
their retirement (people with disabilities, migrants, etc.);

6.3.7. make it easier for older workers to continue working on
a gradually decreasing basis and allow them to combine a pension
with a part-time salary;

6.3.8. take into account the problems of dependence;

6.4. as a complement to measures concerning pension systems
and as part of general policy for the elderly, promote innovatory
approaches such as services for the elderly (based, for example,
on mutual assistance schemes) which could supplement measures taken
in respect of pensions.

B. Draft recommendation

(open)

1. In an economic, demographic and social context putting
a huge strain on European pension systems and requiring far-reaching
reforms to ensure their sustainability, the Parliamentary Assembly
is concerned about the issue of pension adequacy, namely the safeguarding
of adequate pensions for all pensioners. The trends towards smaller
pensions and increased use of funded schemes are creating new intra-
and inter-generational inequalities and therefore pose a threat
to social cohesion in many member States.

2. Referring to Resolution … (2012) on decent pensions for all,
and Resolution 1752 (2010) on decent pensions for women, the Assembly calls on
the Committee of Ministers to urge member States to:

2.1. ratify the revised European
Social Charter (ETS No. 163), which is the only binding Council
of Europe instrument referring to the right of the elderly to “adequate
resources enabling them to lead a decent life”;

2.2. make it a political priority to review and, if necessary,
revise their pension system;

2.3. take, particularly in the light of the current economic
and financial crises, resolute measures not only to ensure the sustainability
of pension systems, but also to guarantee adequate pensions for
all, having regard to the specific situation of groups requiring
special protection;

2.4. provide clear information that everyone can understand
on the options available within national pension systems, which
are often complex, to enable everyone to take their own measures
to provide for themselves according to their means.

3. The Assembly invites the Committee of Ministers to study the
questions of pensions and the standard of living of the elderly
in the context of the intergovernmental activities conducted by
the Drafting Group on the Rights of the Elderly (CDDH-AGE), with
a view to exchanging good practices in this area and preparing practical
instruments, such as guidelines, which can provide member States
with guidance in their ongoing or forthcoming reforms. Active debate
on this subject in the Council of Europe could also represent a
significant contribution in the context of the European Year of
Active Ageing and Solidarity between Generations 2012, launched
by the European Commission.

C. Explanatory memorandum
by Mr Jacquat, rapporteur

(open)

1. Introduction: aims and
basis of the report, and approach adopted

1. Pension systems are a key issue in the political
debates in most Council of Europe member States. The reforms initiated
in the past few years throughout the continent must in particular
respond to two big shared challenges: a demographic trend towards
the ageing of the population and the impact of the current economic and
financial crises on the incomes of the elderly. At the same time,
member States have both to guarantee adequate retirement pensions,
and therefore a reasonable standard of living for current pensioners,
and provide sustainable systems for future generations.

2. In this complex situation, the rapporteur draws the Parliamentary
Assembly’s attention to what he considers to be worrying trends
in pension levels and the standards of living of retired persons
in Europe. Pensioners in a number of member States are facing significant
difficulties in supporting themselves, particularly because of reductions
in pensions. The impact of measures taken to preserve pension systems sometimes
seems to be further accentuated by emergency responses to the current
economic situation and State budget deficits, as a look at various
national situations will show.

3. In the spirit of the European Social Charter (ETS No. 35),
the Assembly considers, and regularly reiterates, that social protection
is essential for achieving social cohesion. In order for it to be
complete, social protection should guarantee the entire European
population access to decent retirement pensions above the national
poverty line and, as specified in Article 23 of the revised European
Social Charter (ETS No. 163), provide elderly persons with “adequate
resources enabling them to lead a decent life and play an active
part in public, social and cultural life”. Accordingly, the pension
reforms currently under way must both affirm the responsibility
of the public authorities by creating greater solidarity within
and between the generations, and encourage the working population
to take their own measures to provide for themselves.

4. This report is based on two motions tabled in 2009 (“Impact
of the financial crisis upon pensioners”) and 2010 (“Decent pensions
for all”). It follows on from Resolution
1752 (2010) and Recommendation
1932 (2010) on decent pensions for women, adopted by the Assembly
on 25 June 2010, and its aim is to provide some further reflection
on the subject of these texts. The rapporteur has in particular
drawn on research conducted by the Organisation for Economic Co-operation
and Development (OECD) and work carried out at European Union
level that resulted in the publication of the Green Paper on pension
systems, in 2010, and the White Paper on “An agenda for adequate,
safe and sustainable pensions” in 2012. As far as France is concerned, the
rapporteur draws on documents of the national pension fund scheme
Caisse Nationale d'Assurance Vieillesse (CNAV) and the Conseil
d’Orientation des Retraites (Pensions Advisory Council – COR). Furthermore, on the rapporteur’s
initiative, a special survey was launched at the beginning of 2012
via the European Centre for Parliamentary Research and Documentation
(ECPRD), a parliamentary co-operation and information exchange mechanism
of which the Parliamentary Assembly is a member.

5. The objective of this report will be neither to be exhaustive
with regard to the issue of pensions in Europe, nor to make any
specific recommendations on the political, financial or fiscal choices
to be made individually by member States. Rather, the aim is to
shed light on, and present in a structured way, the main problems
faced by Council of Europe member States both generally and in times
of crisis, provide member States with guidelines for guaranteeing
decent pensions for all and identify the main areas where sharing
good practices could prove useful in the future.

6. In referring to “financial and economic crises”, the report
proceeds on the assumption that all the recent critical phases in
the global economy are interconnected and must be viewed from an
overall perspective; they include the financial and economic crises
which began in 2008/09 and, after receding to a greater or lesser extent
in 2010, subsequently turned into a Europe-wide sovereign debt crisis
in 2011, which has continued in 2012. The effects of the latest
crisis are not yet well known, but it has been obvious since the
end of 2011 that the impact on social services will be considerable
given that many member States have been forced to cut back on certain
social services under austerity programmes imposed on national budgets.
What we need to know, therefore, is how today’s pension systems
can be made strong enough to withstand the current crises and any other
crisis that may emerge in future.

2. Pension systems in
the light of demographic developments and the impact of the crises:
trends and challenges

7. International experts generally agree that the first
big challenge that governments have to address with regard to retirement
pensions is the demographic trend towards an ageing population.
In a wider context of recurrent economic and financial crises –
the second challenge – the main political priorities as far as pension systems
are concerned are still ensuring the financial sustainability of
the systems and the adequacy of pensions, as well as striking a
balance between the two. These same challenges were also identified
by the European Commission in its Green Paper published in July
2010, as well as in the White Paper published
in February 2012. This work, which constitutes an excellent
overview of the retirement pension situation and clearly sets out
the priorities for modernising pension policy for European Union
member countries, should also serve as a primary reference for any
discussion conducted at Council of Europe level, with due account
taken of the additional characteristics specific to member States
who are not members of the European Union.

2.1. Some of the main challenges:
the trend towards ageing of the population, the need for increased
labour market inclusion of women, and changing lifestyles

8. The fact that in Europe there is a trend towards
the ageing of the population has been known for a very long time.
However, a critical phase of this development will soon be reached
since the “baby-boom” generation is approaching retirement age and
the European population of working age is likely to decline from 2012
onwards. This
statement made with respect to the European Union also applies to
greater Europe, as a glance at Russia by way of example illustrates:
like many other industrialised countries, Russia has seen its population
grow older because of decades of very low birth rates leading to
a decline in the population. Projections to 2030 suggest that Russia
heads a list of 11 countries likely to lose at least 1 million people
in thirty years with an estimated decline of 12 million (out of
some 143 million in 2011).

9. In the light of these demographic trends, the extent of which
varies from one country to another, the OECD says that there will
be a smaller number of economically active people paying pension
contributions and thus paying for today’s retirement pensions and
that the “economic dependency ratio” of elderly people will double in the European
Union: assuming four persons of working age for each person over
65 in 2010, the ratio will only be 2:1 by 2060. The OECD’s figures
for its member States are based on an average of 7.5 contributors for
one pensioner in 2011, a ratio likely to fall to three contributors
for one pensioner in 2050.

10. At the same time, retirement periods are growing longer owing
to increasing life expectancy. In itself, this is a positive development
but it means national pension systems need to make provision for
higher expenditure. In 1970, pensioners in France drew their pensions
for an average of 10.8 years, but that average had risen to 24 years
by 2010. Unless people, as they live longer,
also stay longer in employment, either pension adequacy is likely
to suffer or an unsustainable rise in pension expenditure may occur.

11. The European Commission’s 2009 report on ageing in the eurozone
states that age-related public expenditure will probably grow by
5% relative to GDP by 2060 and that the only source of growth will
be the productivity of a reduced labour force. Hence the importance
of including any policy to support pension systems in a wider framework
of economic and social policies. In this context, the promotion of
greater female participation in the labour force is both a direct
and an indirect source of growth, among other things because it
generates new jobs in the fields of childcare and home help services.

12. Finally, there are other developments that may be sources
of additional difficulties in preserving the level of pensions:
lifestyle changes (single-person households, childless couples,
geographical separation of the different generations of a family,
etc.) are resulting in the establishment of more formally structured
care services and creating additional costs – even if they do create
job opportunities and represent sources of medium-term growth.

13. The challenges to be addressed undoubtedly include that of
defining what is meant by an “adequate” pension: for some people,
it is a pension at least equivalent to the minimum subsistence income,
while others take the view that pensioners should be entitled to
a certain percentage of their previous earnings. A third definition
is that a pension should be calculated according to individual consumption
needs. To define what it means by an adequate pension, the Council
of Europe bases its approach mainly on the revised European Social
Charter, Article 23 of which, on the right of elderly persons to
social protection, states that they should be provided with “adequate
resources enabling them to lead a decent life and play an active
part in public, social and cultural life”. Once the meaning of the
word “adequate” has been clarified, it will be important to consider
appropriate ways of moving closer to the goal of decent pensions
for all. The causes of uncertainty in this regard include the willingness
and ability of individuals to save throughout their lives and the
risks related to the financial markets.

2.2. The effects of the financial
and economic crisis on pension systems

14. According to the OECD’s findings in 2009, no country
and no pension system has been sheltered from the effects of the
crisis. First of all, the financial crisis that began in 2008 has
had an impact on private pension funds, which today are an important
component of pension systems in many countries. The economic crisis that
followed in 2009 led to a drop in production and a considerable
increase in unemployment. These factors were in turn the cause of
a big drop in salaries and a reduction in working time. Finally,
the fall in receipts from pension contributions and an increase
in applications for unemployment benefits, combined with economic recovery
plans, have put greater pressure on public finances. However,
the effects of the financial crisis on private pension funds have
varied according to the composition of their portfolios. For example,
the countries whose pension funds had the highest proportions of
their assets invested in shares (often guaranteeing higher yields
than bonds) have often sustained the greatest losses, such as Ireland
for example.

15. It seems obvious that the current financial and economic crises
will necessarily have an impact on the level of public pensions.
Even where pensions are not decreasing in nominal terms, they tend
to increase more slowly than salaries and prices generally. For
example, in France, the rapporteur’s country of origin, it is obvious
that today’s pensioners have a considerably better standard of living
than those of the 1970s, when the level stood at only 60% of that
of the working population. Even in France, however, many retired
people are faced with pensions which are no longer increasing sufficiently
in relation to the cost of living (housing, energy, medicines, etc.),
according to the charities working in the field.

16. With the aim of ensuring the long-term financial
sustainability of public pension systems, a large number of pension
scheme reforms provide for a transition from systems mainly based
on redistribution of public funds and inter-generational contracts
(pay-as-you-go) to systems increasingly based on (compulsory or
voluntary) funded components linked to the individual’s job before
retirement and managed by private agencies. Within capitalisation
systems, schemes guaranteeing a defined retirement income are increasingly
replaced by savings plans under which “investors” will not know
the amount of their capital until they retire, since it is determined
by the size of the contributions and the rate of return.

17. Under recent reforms, most countries have put in place a multi-pillar
pension system or have modified an existing pillar-based system.
The classification of pension systems by pillars therefore warrants
further explanation. This way of organising pension systems by pillars
is based, inter alia, on the
normative approach suggested in the report published in 1994 by
the World Bank’s research department. The World Bank considers that
the multi-pillar model is the best approach to pension reform and
proposes a three-pillar structure:

a compulsory public pay-as-you-go pillar, to ensure a
minimum income;

a compulsory privately managed and funded pillar, based
on capitalisation, to replace income from employment;

a voluntary privately managed and funded pillar based
on capitalisation.

18. The World Bank therefore rules out a model based exclusively
either on a pay-as-you-go system or a funded system. The same position
is adopted by other international institutions and organisations,
which nevertheless propose a slightly different classification.
The OECD has developed a classification based on four pillars: the
first is a public pillar designed to guarantee a minimum income;
the second is a contributory pay-as-you-go social pillar meant to
substitute for an income from employment; the third comprises collective
funded schemes; and the fourth is based on voluntary individual
savings. For
its part, the European Commission generally adopts a classification
based on three pillars, with the first pillar covering basic compulsory
pay-as-you-go schemes, the second comprising, in principle funded,
occupational schemes established and managed by the social partners,
and the third consisting of schemes based on individual savings.
The classification of pension systems by pillars is therefore the
subject of a debate within international organisations, which is echoed
at national level. While the great majority of European countries
have put in place pension systems based on pillars (usually three),
each of them has adopted different arrangements and combinations
of pillars.

19. According to the OECD report “Pensions at a glance 2011”, most
European countries that are members of OECD have adopted measures
to improve the financial sustainability of their pension systems
in the last few years. However, the trend towards the privatisation
of pensions, the aim of which is to make pension systems economically
viable, is exposing them more to the crisis at the same time. Accordingly,
the impact of the recent crises is said to have been more severe
in countries with a significant proportion of private pensions and
retirement savings, where investments have been made in risk products
or when the financial balance of the public systems was already
critical.

20. Generally speaking, the role of private pension savings schemes
varies enormously from one OECD country to another. For
example, in the Netherlands or the United Kingdom, private financial
sources account for more than 40% of retirement income, whereas
in Austria, the Czech Republic, Hungary, Poland and the Slovak Republic
the percentage is about 5% (2009 figures). However, even some of
the afore-mentioned countries now have compulsory private pension
schemes. The youngest wage-earners should therefore be entitled
to a pension from the private sector amounting to a third of their
income in Hungary, half in Poland and 60% in the Slovak Republic.

21. In the context of the future reforms to be undertaken by countries
that have to involve the private sector still more in their pension
system, or introduce funded elements, it will therefore be important
to ensure that the systems in question are made able to withstand
future crises. According to the OECD, the best method for governments
and individuals, given the economic, demographic, financial and
social uncertainties, would be a mix of sources of retirement income
and the development of balanced multi-pillar pension systems, as
is already the case in many countries today.

2.4. Elderly people are among the
groups most affected by the crises

22. According to the latest forecasts, Europe will in
the near future be confronted with a growing number of people who
have been unable to contribute fully for their retirement and who
will be at risk of poverty once they reach retirement age. In most
of the countries studied by the OECD, elderly people are actually
among the groups at risk of poverty, especially in times of crisis.
Not only do they depend on the stability of pension systems during
a crisis and on the income from them, but the crises themselves
also aggravate the general economic situation, which has a direct
influence on their standard of living because of its impact on personal savings
and the prices of consumer goods and, especially, energy. However,
the extent of the impact of the crisis on retired people depends
on the age of those concerned.

23. Accordingly, people close to retirement are most affected
by the impact of economic and financial crises. They are among the
first to lose their jobs in a period of economic slowdown and among
those most exposed to the risk of long-term unemployment. This can
lead to a permanent reduction in their retirement income and prevent
them from making up for lost earnings. As happens more generally
in the case of retirement pensions, the extent of the impact of
a financial crisis on retirement incomes, especially savings, also
depends on the composition of the investment portfolio. Only a proportion
of pensioners have transferred their investments to less risky assets
when retirement age approaches. These effects on individual pensions
are all the more dramatic as retirement pensions must also be considered
“crisis absorbers” if they provide a decent level of income. Any
impact of an economic crisis on pensions could therefore make the
initial crisis worse.

24. Compared to this first category of people, younger employees,
prime-age employees and pensioners are much less affected by the
recent crises. The youngest group (25-34 years) will have thirty
years or more to compensate for the temporary devaluation of their
investments or the effects of an incomplete career. The second group
(35-44 and 45-54), even though the financial crisis has taken its
toll on their private retirement savings, still have enough years
in front of them to reconstitute their savings and their jobs are
generally less threatened than those of younger or older employees.

25. Finally, today’s pensioners will generally suffer relatively
little from the crisis (apart from a few exceptions) and are generally
sheltered from the effects of the economic crisis on the job market
or of the financial crisis on private pensions. By contrast, these
individuals are, like everyone, suffering from the general effects
of the economic crisis on prices and will probably be affected by
measures applied in response to the current debt crisis, which is
also impacting on public pension schemes.

2.5. Preserving intra- and inter-generational
solidarity

26. On a political level, any attempt to reduce the level
of pensions necessarily comes up against major obstacles. A further
difficulty lies in the increased use of funded pension schemes.
Most countries which have reduced the benefits of pay-as-you-go
pension schemes have, at the same time, adopted measures to extend the
coverage of funded schemes. However, as the number of people covered
by these new instruments is still small, a return to significant
inequalities in the pension field can be expected in most European
countries. In the
light of this situation, the rapporteur calls for the preservation
of the greatest possible intra-generational solidarity as a basis
for social cohesion in our societies.

27. The OECD believes that the consequences of the economic and
financial crises have indeed been painful for many people. However,
as far as pension policies are concerned, the effects of the crises
are negligible in relation to the problem of an ageing population,
which remains the main challenge to be addressed in any current
or future reform of pension systems. In its Green Paper, the European
Commission also confirms that the recent economic and financial
crises has only worsened the impact of the strong trend towards
the ageing of the population. It points out that inter-generational
and national solidarity are key principles and that “sound and adequate
pension systems, enabling individuals to maintain, to a reasonable
degree, their living standard after retirement, are crucial for
citizens and for social cohesion”. It
continues as follows: “Ensuring adequate retirement income is the
purpose of pension systems and is a matter of fundamental inter-
and intra-generational solidarity. Most reforms of pension systems
so far have been aimed at improving sustainability. Further modernisation
of pension systems will be needed to address adequacy gaps.” The
rapporteur suggests adopting the same lines for the draft resolution
and recommendation to be proposed to the Assembly.

28. Furthermore, the rapporteur fully supports the European Commission’s
findings in its White Paper with regard to older workers: raising
the effective retirement age will not be about pitching the interests
of the young against those of the old. Indeed, the member States
with the highest employment rates for older workers also have some
of the lowest youth unemployment rates. In the long term, the number
of jobs is not fixed, but depends notably on the supply of qualified
workers, which is a key driver of economic growth. The increased availability
of experienced older workers will enhance Europe’s growth potential
and thus create more opportunities and better living conditions
for the young and the old.

3. Reforms of pension systems
in Europe: instruments for improving system viability and adequacy

29. At European Union level, the European Commission
has established that most member States have been forced to initiate
significant reforms of their pension systems in the last few decades,
while the recent economic and financial crisis has only highlighted
the need to review the existing systems. In their reforms, States
have first of all addressed aspects of the viability of systems
and the question of pension adequacy, as well as more specific issues
such as job market development and the distribution of gender roles.
Once again, these findings certainly apply to a large number of
States which form part of greater Europe.

30. More specifically, the European Commission recommends that
its member States:

link the retirement age with
increases in life expectancy;

restrict access to early retirement schemes and other
early exit pathways;

support longer working lives by providing better access
to life-long learning, adapting workplaces to a more diverse workforce,
developing employment opportunities for older workers and supporting
active and healthy ageing;

equalise the pensionable age between men and women;

support the development of complementary retirement savings
to enhance retirement incomes.

31. With the aim of improving pension adequacy, the first measure
initiated by governments is often to extend working life by encouraging
people to work longer and raising the retirement age, now fixed
at 65 for both women and men in most OECD countries, less than 65
in some (including France), and 67 in others, including Iceland
and Norway (see
document AS/Soc/Inf (2012) 08 ). Although different developments are planned, depending
on the specific context of each country (and also on life expectancy
and the effective retirement age), a general trend towards increasing
the statutory retirement age is nevertheless emerging.

32. Other instruments available to governments include the level
of pensions, the level or period of contributions and the elements
used as a basis for calculating the level of pensions, for example
most recent salary years, best salary years or average salary over
the whole career. Generally speaking, recent and ongoing reforms
observed in Europe are marked by a twofold trend: on the one hand,
reductions of varying degrees in public pay-as-you-go schemes and,
on the other, an attempt to develop funded instruments either on
a collective (sector or company) or individual level.

3.1. The example of France: “restoring
young people’s confidence”

33. In order to have a better understanding of the challenges
facing member States and the choices they will have to make in connection
with their pension reforms, France, the rapporteur’s country of
origin, has served as a first example. The pension system in France
has developed in different phases. From 1945 to 1970, the primary
aim was to maintain a decent standard of pension provision. Since
1970, the problem has been compounded by the now very familiar demographic
challenges, especially greater life expectancy, which is extending
the period spent in retirement. In France, it is the job of the
national retirement insurance fund, the Caisse Nationale d’Assurance
Vieillesse (CNAV), in close co-operation with the retirement orientation
board, Conseil d’Orientation des Retraites (COR), to advise the
government on its strategic choices and inform insured persons by
explaining to them all the possible choices available.

34. The first French reform took place in 1993 and not only established
the principle of taking into account the twenty-five best salary
years instead of ten to determine the size of the pension but also
introduced a new price-based indexation. The 2003 reform was designed
to increase the number of contribution years required to reach the
maximum pension. This number will gradually rise to 41.5 years in
2018 (namely for people born in 1956). The 2010 reform provides
for a rise in the retirement age to 62 in 2018, a target date considered
by the French authorities to be perfectly sustainable for the introduction
of new measures.

35. The most recent reform took place in the context of the economic
crisis in which pensions were themselves not directly affected but
where a high level of debt had been reached in order to guarantee pensions.
The main guiding principle of this last reform was the desire not
to increase wage and salary deductions any further, nor to reduce
pensions. However, in the different reform phases France has taken
all possible measures with regard to pensions: (1) level of contributions;
(2) duration of contributions/age of retirement; (3) the level of
pensions.

36. According to the CNAV, a number of approaches are possible
to determine the level of pensions: the contributions made throughout
a person’s working life (social insurance) or an income corresponding
to the final salary received. The CNAV system is based more on the
latter. The fundamental question was therefore that of the index
link applied to determine a decent level of pension for retired
people. Other issues that the French reforms had to deal with were
the protection of those who are most vulnerable, the responsibilities
of each individual and restoring young people's confidence in the
future, this being considered one of the main challenges.

37. In France, the pension system is still firmly based on the
principle of solidarity and contains elements of support for those
who are most disadvantaged. There is therefore a possibility of
relatively early retirement, for example, for anyone who has a long
career, has a disability or suffers from an illness. According to
the CNAV, French people remain strongly attached to this solidarity-based
system and the "saving for retirement" approach has had limited
success as a result. However, the political agenda includes another
phase of reform in 2013, this time entailing new contribution methods.

38. Issues still needing to be tackled are the financial balance
of the different systems and final salary pension schemes, the latter
being intended to ensure a direct link between standard of living
while working and after retirement, without falling below a certain
threshold. Also still to be reviewed is the proportion of each person’s
individual contributions to the retirement pension: the basic fund
for pensions will continue to be built up jointly, while every person
should in future be allowed to add to their own pension according
to their own situation. In the case of France, this is taking place
in a particularly complex context characterised by a pension system
that distinguishes not only between public-sector and private-sector
schemes, but also, for historical reasons, involves around 35 special
schemes for various occupational categories. The complexity is intensified by
the increasingly “fragmented” nature of professional careers, with
regular changes having become the norm, making it ever more difficult
to advise individuals concerning the path to follow.

3.2. The example of Germany: need
to strengthen the promotion of the second and third pillars

39. Statutory old-age insurance was introduced in Germany
over a century ago – the world’s first public pension system – and
has undergone many far-reaching reforms since the 1950s. Like most
European countries, Germany is faced with an ageing population and
the imminent retirement of the baby-boom generation, after which
there will be fewer and fewer contributors paying pensions for more
and more pensioners.

40. The German pension system is based mainly on three pillars:
(1) statutory old-age insurance (pay-as-you-go); (2) an occupational
pension system (betriebliche Altersversorgung);
and (3) various private schemes, including fully private contracts
and the Riester Rente, which,
since 2001, has offered the possibility of access to State-subsidised
savings schemes. The German system, like the Swiss (see below),
is considered exemplary. The German social partners will, however,
be faced with a certain number of challenges in the years ahead.
Among the latest measures taken, the German Government (under a
2006 decision) has gradually raised the statutory retirement age
to 67, and the world of work will therefore have to adapt to this new
reality.

41. It was announced just recently that the level of State pensions
will decrease by 10% in relation to salaries by the year 2025: whereas
the level of pensions stood at 50.8% in relation to salaries (before
tax) in 2011, that figure is expected to fall to 45.2% by 2025.
According to the German Institute for Old-Age Provision (Deutsches Institut
für Altersvorsorge), the average pensioner will get only 38% of
his or her last gross salary, a figure which, according to estimates,
will decrease still further, to 35.6%, after 2040.

42. These trends are considered extremely worrying by the social
federations, which are demanding that pensions be aligned with the
positive overall trend in salaries. According
to the OECD, Germany will be faced with a growing number of elderly
people living in poverty unless access to the second and third pillars
is facilitated, especially for the lower-paid. There would also
be no automatic provision for those who have not contributed continuously.
The Swiss model could serve as an example even for Germany because
it provides for compulsory coverage by the three pillars. The slow growth of two of the pillars
is undoubtedly due, inter alia,
to the complexity of the pension system, because the second pillar
alone offers employees five different options: employer savings,
pension schemes, pension insurance, support funds and pension funds.

3.3. The example of Switzerland:
a three-pillar system in place for many years

43. Switzerland established a “three-pillar system” many
years ago. The first pillar, State provision (old-age and survivors’
insurance/disability insurance), is designed to guarantee the resident
population the appropriate cover for the necessities of life in
old age and in cases of disability or widowhood. The second pillar, occupational
provision, enables people to maintain their previous living standard,
and is compulsory for workers earning an annual income in excess
of CHF 20 880 in 2011 and optional for the self-employed. The third
pillar, personal provision, is designed to supplement other pensions
according to each individual’s needs. The first and second pillars
are not financed in the same way. The old-age and survivors’ insurance
scheme, which is based on an inter-generational contract, is financed
on a pay-as-you-go basis (today’s economically active population
finance the benefits of today’s pensioners), whereas the occupational
scheme is funded (constitution of an old-age savings account that
enables occupational pension benefits to be financed).

44. The latest reforms implemented in Switzerland retain the three-pillar
system, but seek to enhance its sustainability. There have been
two failed attempts to reform the 1st pillar, one by referendum,
the other in parliament. A “minor”, somewhat technical, reform accepted
by parliament came into force in 2012. A reform of the 1st pillar
to guarantee its financing and sustainability is at the planning
stage. The latest reforms of the 2nd pillar were adopted by parliament
in 2010 and 2011 and came into force in 2011 and 2012. They include closer
supervision, stricter requirements for 2nd-pillar stakeholders and
increased transparency in management of pension funds, thus helping
to prevent abuses. The provisions relating to the financing of public pension
funds are intended to guarantee the financial security of those
institutions. Some measures apply specifically to older workers
and are intended to encourage their continued labour market participation.
In view of its relatively sound and balanced retirement system,
Switzerland can certainly serve as an example for other European
countries.

3.4. The example of the United Kingdom:
abolition of a statutory retirement age

45. In 2008, the United Kingdom had a two-tier pension
system consisting of a flat-rate pension and an earnings-related
additional pension, complemented by a large voluntary private pension
sector. In the last few years, these private schemes have admitted
a large number of contributors who have left the second public tier
(35% of employees). An income-related benefit (pension credit) has
also been introduced for the least well-off pensioners. The
reforms recently initiated by the United Kingdom follow the same
trend as that observed in other countries, namely a raising of the
retirement age, which is currently 65: under the Pensions Act 2007, which
the British Government is in the process of implementing, the statutory
retirement age will be raised to 66 years in 2020 and continue rising
gradually to reach 68 years by 2050.

46. However, the latest measures include permission for employees
to work beyond the age of 65 if they so wish, and the abolition,
as from October 2011, of the statutory retirement age while retaining
a minimum contribution period for entitlement to a full pension.
An increase of 10% in the basic retirement pension for each year
worked beyond the age of 65 for men and the age of 60 for women
has been introduced to encourage those over 65 to remain in the
workforce longer.

47. The potential impact of the financial and economic crises
became apparent in June 2010 when the government announced in connection
with the budget debate that it intended to change the index for
inflation-proofing in the pension schemes from the retail price
index (RPI) to the generally slower-growing consumer price index
(CPI). Given that this might prompt some private-sector companies
to make the same switch, a large number of pensions could be affected
in future.

3.5. The situation in other Council
of Europe member States

48. Norway has recently reformed its pension system.
With a life expectancy above 81 years in 2010, the number of pensioners
has constantly risen in the past few decades, whereas the number
of economically active persons has fallen. In order to safeguard
the pay-as-you-go pension, a reform was therefore essential, so
the Norwegian Parliament decided to make the retirement age flexible.
Since 2011, everyone has had the choice of combining pay and pension
and working for as long as they wish (from age 62 to 75). If the
pension is taken at 62 (the first year possible for taking early
retirement) and not at the age provided for by the public pension scheme
(67 years since 2007), the pension will be reduced, but it increases
with every additional year worked. Elements of pre-funding have
been introduced into the pay-as-you-go system. Furthermore, the
basic pension will be adjusted to life expectancy for each cohort.

49. In eastern Europe, many countries have begun to embark on
reforms of their pension systems owing both to the challenges common
to other European countries (demographic developments, financial
and economic crises) and to the demands of international donor agencies
(such as the European Union or the International Monetary Fund (IMF)),
which consider some pension systems to be significant burdens on
State budgets and demand reforms as a precondition for granting
loans. For example, in Romania a reform raising the retirement age
was passed by the parliament in 2010. This law provides for the retirement
age to be gradually raised to 65 for men and 63 for women by 2015.
In response to the financial and economic crisis, which has affected
both pension fund holdings and national economies in general, different
approaches have been adopted. To enhance the viability of their
systems, Estonia, Hungary, Latvia, Lithuania, Poland and Romania,
for example, have apparently rethought their funding models by redirecting
contributions made to the second pillar towards the public pay-as-you-go
pillar.

50. Similarly, the reform initiated in Ukraine is based on the
same international requirements but remains very controversial in
the country itself, which, in July 2011, experienced demonstrations
against the adoption of the draft reform by the parliament. The
reform in Ukraine aims to change the statutory retirement age gradually
from 55 to 60 for women and from 60 to 62 for men. The primary aim of the latest reforms,
which came into force in January 2012, was to establish a three-pillar
system and specify the conditions for entitlement to the minimum
and maximum pensions. Far-reaching reforms had proved necessary
in Ukraine because the traditional system had become socially and
economically ineffective, which placed a huge burden on the State
budget.

51. Faced with the same demographic challenges as many other countries,
the Russian Federation has had a three-pillar pension system since
2002, comprising a public pension (social pensions), a compulsory retirement
fund (occupational pensions) and voluntary private pension insurance.
Under the State system, the statutory retirement age is 60 for men
and 55 for women, and there is a range of supplementary benefits
for the neediest cases, persons with disabilities and war veterans.
According to official announcements, the situation of pensioners
is improving constantly: in 2012, occupational pensions (Russian
pension fund) were to increase by 7% (in February) and by 2.4% (in
April), and social (State) pensions by 14.1% (in April).

52. It has been well known for a number of years, however, that
the Russian Government is faced with growing expenditure related
to the pension system. This contributes to a chronic budget deficit
amounting to 3% to 4% of GDP which, according to a report in 2009
by the Merrill Lynch Investment Bank, is set to last for the next
decade. For 2010, the Russian pension fund was estimated at around
40 billion dollars (or 2.4% of GDP). According to experts, the only long-term
solution would be further reforms to the pension system and resolute
promotion of private pension funds, which only 5% of Russians had
joined in 2009. In the absence of any structural change, the regular
increases, designed, inter alia,
to avoid social tensions, therefore seem to put greater pressure
on a pension system already subject to strain. It is estimated that,
around twenty years from now, there will be only one worker for
every pensioner, which would represent a demographic “time bomb”.

53. A look at Turkey, another of the big Council of Europe countries,
reveals a highly specific situation. The pension system is a public
earnings-related scheme together with private pension schemes introduced
in 2001. Contributions to the latter are tax deductible. According to
experts, these reforms have greatly improved the system’s long-term
viability. However, the large informal sector still represents an
obstacle to old-age provision in Turkey because it offers numerous
possibilities for bypassing the social security system. The success
of Turkey’s pension reforms also depends on the government’s ability
to address and resolve this issue.

54. At present in Turkey, reform measures such as raising the
retirement age and reducing income replacement rates are virtually
restricted to young labour market entrants, who will therefore have
to carry the main financial burden. For the majority of employees, replacement
rates are still generous compared with other levels observed in
the OECD area and therefore dissuade employers in the formal sector
from employing unskilled workers. In view of this complex situation,
it is anticipated that the rate of voluntary membership of occupational
or private pension schemes will remain low and that, owing to the
lack of minimum pension benefits for those who need them, poverty
will remain a problem among the elderly.

3.6. Special survey of national
parliaments

55. On the rapporteur’s initiative, a special survey
was conducted via the European Centre for Parliamentary Research
and Documentation (ECPRD). Answers
were given by 32 Council of Europe member States, confirming some
of the trends already identified:

the
majority of member States currently seem to be moving towards three-pillar
pension systems. Changes of paradigm (as regards the pillars) and
parameters (contribution levels, indexation, etc.) may be observed
in the reforms undertaken;

the statutory retirement age is rising in most of the
respondent countries, although the actual average retirement age
is considerably lower in a good many countries. This seems to indicate
that measures to keep older workers in employment for longer will
be necessary to ensure that as many people as possible qualify for
a full pension;

many countries have been forced to lower the level of
State pensions;

in most countries there seem to be moves to harmonise
the statutory retirement age for men and women;

one question which was not dealt with explicitly in the
survey but which should be kept in mind in view of the initial results
obtained is that of the number of people who have joined (obligatory
or voluntary) supplementary pension schemes, together with the question
of how this will affect their future income.

56. Examples which stood out as good practices or because of their
unusual nature, and in relation to which future exchanges of good
practice might prove useful, include:

Finland, for some of its radical measures: the entire
period of contribution will henceforth be taken into account to
determine the level of pensions and the statutory retirement age
has been abolished, so that the retirement age is now completely
flexible;

Poland, which has set clear limits on early retirement
options;

Sweden, which seems to have a wider range of measures
for providing adequate pensions, ranging from a guaranteed minimum
pension under the first pillar to the development of an employment
market more open to older workers;

Switzerland, with a relatively highly developed three-pillar
system, which is currently aiming to achieve more transparent management
of pension funds to help prevent abuses.

4. Conclusions – Recommendations:
what paths should be followed to strengthen pension systems in a
sustainable and balanced way?

57. The trend towards ageing of the population is clearly
the greatest challenge facing European retirement systems. As regards
the recent financial and economic crises and the public debt crisis,
a rapid response is certainly important to protect the systems in
place. However, sustainable development of pension systems, which
includes a long-term perspective, will be vital to ensure that the
systems in place are strong enough to withstand future crises.

58. The adequacy of retirement pensions is not only an outcome
very much anticipated by all the reforms initiated but also a factor
for stability against future crises. Member States should therefore
make it a priority henceforth and for the next reform phases to
be embarked upon. In addition, guaranteeing decent pensions both
for today’s and tomorrow’s pensioners is a matter of human dignity
and involves the recognition of each individual’s efforts and contribution
to the sustainable development and well-being of society as a whole. Decent
pensions – both today and tomorrow – will therefore be an important
factor of social cohesion.

59. The reforms undertaken by many member States in recent years
have certainly contributed to the sustainability of public pension
systems. However, situations vary widely from one country to another.
Among those which seem to have fared best in terms of ensuring the
sustainability of their systems, we find the Scandinavian countries
(Denmark, Sweden) and the Netherlands, which all have balanced multi-pillar systems. A diversification
of pension systems as initiated by many countries in recent years
therefore seems to be a step towards greater stability, even if
the increasingly widespread adoption of funded systems represents
a risk of creating new inequalities. The challenge for European
countries is to strike a balance between pay-as-you-go and funded
systems. The State will have a vital role in guaranteeing that future
pension systems retain a strong solidarity-based component and include
a pay-as-you-go pillar.

60. In the context of financial and economic crises, the establishment
of balanced and sound pension systems poses two major challenges:
(1) it is necessary to resolve the problem of State budget deficits generally
and, in particular, those of public pension funds. Austerity measures
may worsen the situation and jeopardise the principle of inter-generational
solidarity. Real economic recovery will be the only lasting solution. (2)
Positive economic effects must benefit individual households so
that they are able to contribute to (collective or individual) supplementary
schemes. This type of approach can be promoted or subsidised by
the State, but in the first instance, the individuals concerned
must be capable of contributing to such schemes from their own income.
A climate of confidence and new pension schemes need to be built.

61. It is, moreover, of the utmost importance for the (public)
authorities in the member States (governments and parliaments) to
be open to dialogue with all stakeholders (including civil society),
in a spirit of transparency, before undertaking major reforms. The
purpose of such dialogue should be to achieve an acceptable balance between
the costs and benefits of future alternative schemes. They will
also need to address and respond to the uncertainty observed among
the younger generations in a good many countries as to the future
of their pensions. There will be a need for nuanced debate which
is not based simply on the division between public and private systems
as the only possible alternatives but studies the best possible
combination between the pay-as-you-go and funded systems. Such debate
should lead to a clear allocation of responsibilities between public
and private players in a spirit of “shared social responsibility”.

62. In view of the current situation of European pension systems,
and especially of the trend towards the ageing of the population
and following the recent financial and economic crises, Council
of Europe member States should explore and, if appropriate, take
the following measures:

63. On a general level:

implement
pension systems that reflect the complexity of today’s work situations
(including more frequent changes of jobs) and lifestyles;

combat the persistent inequalities in pension systems,
especially between women and men, inter
alia, beginning with the gender wage gap;

initiate or complete pension reforms that both maintain
the long-term viability of systems (including when facing future
economic crises) and pension adequacy;

provide clear information, which everyone can understand,
on the implications of existing pension systems for every individual,
particularly as regards the size of the pension which every contributor
can expect in future under pay-as-you-go systems;

pursue positive economic policies designed to revitalise
the economy without any loss of purchasing power.

64. With regard to the sustainability of systems:

consider pensions as an important
aspect in the context of the responses to be made to the current
debt crisis (2011/12);

in the light of the economic, demographic, financial and
social uncertainties, design national pension systems based on a
sound “mix” of sources of pension income (funded and pay-as-you-go
components), and hence on several pillars;

consolidate, nevertheless, inter- and intra-generational
solidarity, which also confirms the State’s central role in guaranteeing
decent pensions for all;

promote international co-operation on pensions, given
that pensions are increasingly becoming a transnational matter extending
beyond the borders of the European Union or the Eurozone (migrant/mobile
professionals, international pension funds).

65. With regard to pension adequacy:

ensure a dignified standard of living for pensioners by
granting them a certain amount of guaranteed pension from the public
pension system based on inter-generational solidarity, while at
the same time calling for more individual responsibility to be exercised
by people in work who still have the time to build or contribute
to savings to an extent to be determined;

pursue resolute job creation policies, because only those
with a sufficiently well-paid job are able to save in order to supplement
their future pension or contribute to supplementary pension schemes;

take account of the new lifestyles of families, which
often demand external care for the elderly, as well as the increase
in average life expectancy (which also prolongs the periods in which
retired people receive pensions);

provide financial assistance for parents with (a) dependent
child(ren) so that they can reconcile bringing up their child(ren)
and saving for their own retirement. It is not easy for parents
to provide for a family’s needs and raise one or more children and
at the same time be able to save enough for their own future retirement;

find appropriate solutions for people with periods in
which they have made no pension contributions (for example, women
who have taken a career break, especially to look after children);

provide for specific pension measures and schemes for
vulnerable groups that have not had sufficient means to prepare
for their retirement (migrants, people with disabilities, etc.);

make it easier for elderly people to stop working gradually,
which would enable them to supplement their retirement pensions
by a salary and would certainly have positive effects on their physical
and mental health, thus limiting the costs that could otherwise
be incurred by health and care systems.

66. Independently of the financial and structural implications
of pension schemes and in terms of general policies for retired
people, it seems useful to explore – also as part of an exchange
of European good practices – innovative ways of improving the well-being
of retired people, such as benefits in the form of services to the elderly.
Several countries currently have mutual assistance schemes under
which elderly people provide assistance to others and are rewarded
with “points” which will enable them in future to call on similar
services when they need them. This type of assistance certainly
must not replace financial benefits from pension schemes, but can
supplement them to make life easier for elderly people in need.